Falling inflation could shape ‘consumer confidence very quickly’: Exante Data CEO

Exante Data Founder and CEO Jens Nordvig joins Yahoo Finance Live to discuss July PPI data, how broad inflation is, and the outlook for markets.

Video transcript

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BRIAN SOZZI: Welcome back. Let's get a quick check of the markets here. We're seeing markets in rally mode, as traders embrace today's better-than-expected read on inflation. That, of course, was the PPI index which fell, a rare fall in a reading on inflation. But again, traders embracing that latest read on the PPI as it will help many consumers across this country.

Let's get more on the outlook for inflation in markets with Exante Data founder Jens Nordvig. Jens, good to see you here this morning. Your take on these numbers this morning.

JENS NORDVIG: Yes, we we're seeing a trend that goods prices are essentially coming down. Finally, after surprising to the upside for such a long period of time, right? So that's good news.

If we look at the CPI numbers yesterday, we can see that there are a bunch of categories where prices are falling quite rapidly. Those are categories that are closely tied to energy. So it's very logical those are the ones that are moving the most.

So I think the big question going forward is, OK, is that improvement and the inflation picture is gonna become more broad? Or is it really something to do with the commodities cycle? So, so far, services prices have not really changed. Service price inflation is running around 5%. That's been the case for the last six, seven months. So for the Fed to really view these numbers totally different, we would need that service price inflation to look different, too.

BRAD SMITH: How quickly do you expect this to be reflected even in the sentiment or the confidence that consumers have? If they see prices for producers coming down, especially in an environment where they've been told that, yeah, the prices are just going to need to get passed through to you.

JENS NORDVIG: Well, so I think for the consumer, obviously, all prices matter. So if there's a lot of consumers that have been hurting because gasoline prices were very high. And those gasoline prices are coming down. That's a positive. And that could actually feed into consumer confidence very quickly.

So I'm not saying it's not important what has happened. It's just a matter of whether it's going to be enough for the Fed to pivot quickly. And I think that's definitely an open question. But we should also think from a market perspective about tail risk, right?

If headline inflation had continued to go up, we will be in a totally different world. Like, it is not long ago where we were discussing whether the Fed could do a 100 basis point step at one meeting, right? And now, the discussion is actually quite different about whether they're going to do 50 or 75.

So from that perspective, just removing that tail risk, even if it's tail risk, that is relevant for how markets see this sort of uncertainty. And uncertainty is extremely important to assets. And it's that removal of uncertainty, that tail risk getting out, that is, I think, driving some of the asset price moves you're seeing right now.

BRIAN SOZZI: This pullback in inflation that we saw on PPI, Jens, is this the first sign of the rate increases from the Federal Reserve?

JENS NORDVIG: I think, actually-- so we cover the global economy and global capital flows from a very global perspective, right? And if we sort of scan through one of the key drivers, one of the big drivers right now is that actually inflation in China is very low. And since they export so aggressively to the rest of the world, that is something that feeds into producer prices and import prices around the world.

And that's why we are seeing some goods price categories come down. Like we saw it in some of the electronics categories, those prices are coming down. So I think China-- and actually-- it's actually linked to China having issues in their own domestic economy. They don't have price pressures there. That is starting to feed through. So there's a dynamic there. There's a commodity price dynamic. But then it's different what's going on with services price broadly. So it really is a quite nuanced picture when you look at CPI overall.

BRAD SMITH: What do you believe the net effect then will be for the EU countries that, for their right, that could already be in a recession and their consumers feeling the impact of that?

JENS NORDVIG: So for Europe, I think it's important to keep in mind that we have a very, very different situation because their energy prices are not coming down in the same way as the US energy prices are coming down, right? They have a huge issue with gas-- natural gas supplies from Russia. And we've not seen the same price declines as we've seen in the US over the last couple of months.

And therefore, I think we can be in a very difficult situation in Europe where we have the growth picture weakening, but actually not much of an improvement at all in the inflation picture. So the European Central Bank is facing a real dilemma here. And with inflation this high and rates coming from such a low point, they don't really have much of a chance of delivering some tightening at coming meetings.

BRIAN SOZZI: Real helpful analysis here on this Thursday morning. Exante Data founder and CEO Jens Nordvig, have a great rest of the week.

JENS NORDVIG: Thank you.